American tech giants are making life tough for startups (2018)
economist.com
economist.com
Generally, startups have drastically less internal momentum, bureaucracy, tech debt, or politics to contend with and are much better positioned to push fresh ideas, and be responsive to customer needs rather than fitting a larger corporate narrative. But its fair to say that if a startup idea is really just a feature idea (even a really good, well-executed feature idea, like Calendly) and doesn't scale its ambition beyond that, the best outcome to hope for is a buyout, and at worst being built internally by a giant.
On the other hand, its never been easier to start a software business thanks to incentives from the tech giants. Google Cloud is basically free to start up and gain traction with. Granted, there may be downsides to this, but not having to think too hard about infra opens up a lot of opportunities at the same time.
Even though I personally have benefitted from the upward pressure to software engineering comp, as consumers I believe we would have a way better ecosystem of tech products if engineers salaries weren't tied to VC economics.
Startups have the ability to compete in ways like better equity deals but by and large they still highly prioritize their investor concerns over hiring concerns as reflected in things like liquidation preferences in ISO and stingy equity grants. Most of the founders would rather ride their startup to the grave then re-evaluate the “standard” terms of their equity compensation approaches which each year have become more favorable for VCs and less favorable for employees.
Even though big tech has many problems and things I disagree with, at the end of the day they respect engineers by paying them their value while startup founders prefer to make engineers second class citizens then bemoan their hiring difficulties.
If you go back and re-read this is exactly my point. Google, Facebook, Amazon have structural advantages that make them more profitable than the majority of useful services ever could be, much of which is based on the unregulated and morally questionable use of massive amounts of user behavior data. This sucks the oxygen out of the room for startups who could provide an honest product for an honest price, but might not be able to get the economies of scale to pay $500k per senior engineer. In other skilled labor professions $100k-$200k is considered well compensated, and that creates a larger sweet spot which enabled more diversity of services. With software + internet the potential for near-zero-marginal-cost global scaling push everything towards a winner-take all mentality, and so small shops providing diverse and higher quality niche products get squeezed for talent.
Again, I have benefitted personally from this dynamic, but I'm also old enough to be saddened at the unfulfilled promise of lower software build and distribution costs that we envisioned at the blossoming of the web and the release of Microsoft's iron grip on software profitability in the late 90s.
Some data for "senior software engineer" in the US indicate:
"The middle 57% of Senior Software Engineers makes between $117,200 and $203,000, with the top 86% making $375,000"
https://www.comparably.com/salaries/salaries-for-senior-soft...
"The middle 57% of Staff Software Engineers makes between $107,389 and $262,186, with the top 86% making $572,331."
Since levels/titles are truly comparable across companies (nor across time), it's very hard to get a true sense of what those numbers even mean. But I think it's fair to say that you shouldn't expect a median nation-wide "software engineer" salary to match the expectations of the "right person you really want to hire for your position but you can't find".
The downsides are that all your employees are a.) remote b.) not great English speakers and c.) generally mediocre developers, and this all has negative impact on developer velocity and the caliber of features you can ship. If you're chasing a niche this is often a great trade-off, because it can make your business profitable even at revenue levels that can't support a big-company product. If you're chasing the next big thing this is usually a stupid idea, because somebody's going to raise $50M, hire top-quality ex-FANGs at half a million each, put them in a room together, and win the market before you can ship your first couple features.
Two perrenial favorite pieces on this website include Dark Matter Developers [0] and We Only Hire The Trendiest [1].
[0] https://www.hanselman.com/blog/dark-matter-developers-the-un...
"the unfulfilled promise of lower software build and distribution costs that we envisioned at the blossoming of the web and the release of Microsoft's iron grip on software profitability in the late 90s."
Is it unfulfilled? Many of us don't use Windows these days, which is a nice improvement for those who choose other platforms, and the web/cloud has driven build and distribution costs much lower. When was the last time a software startup had to sink money into the logistics of CD burning and boxed retail deals?
https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...
It really wasn't until after this lawsuit, along with Facebook actively making better offers, that tech salaries started to skyrocket. I'm the sure the bull market for 8 years didn't hurt either.
No, the lawsuit had nothing to do with it. The market exploded because Facebook refused to join the cartel. The lawsuit fined the companies involved risible amounts and no one involved got fired or jail. Irrelevant.
RAM manufacturers got caught in market pricing collusion every decade what 3-4 times?
Maybe that is one of the reason headcounts have ballooned and complexity has increased so much -- an attempt to minimize individual impact. VCs and MBAs famously refer to this as the bus principle: what would happen if the key employee or executive got hit by a bus today? How would the company fare? The metaphor is quite telling in its priors, assumptions, and priorities.
All of my friends and aquaintinces in nursing, tax, retail, and trucking have a few people who are trying to break into programming because of the benefits and pay. Outsourcing, scope creep, and automation exist and are expanding in my industry as well. How long until this drags down programmers as well? With the potential end of this bull marker will programming compensation stop being the highest paid field? I do wonder and doubt.
My other point is that, based upon the revenue and profit generated per employee for many of these mega corporations, software engineers should be paid more, but I think lately we have astronomical pay relative to other industries in the 3-10 year experience mark for most of the roles in the labor market.
These tech giants are great at xeroxing products and features, not so good at selling them in such a way that users can be convinced to switch. The existence of so many cookie-cutter clones that never get anywhere, from entire cloud gaming platforms, to mobile payment methods, to slapping Snapchat-style stories into an app for no reason, shows that it's easy to envision and build, hard to get actual users.
Future has in for us more state corporatism than I'd like. It is sort of dystopian, but that word has been diluted these days.
Finance laws are indeed extremely complicated and many are very questionable, but I don't know how much to blame government for that. Money is at the centre of so many conflicts, crime and disasters that a lot of those rules are the scar tissues from previous wounds. You can argue to get rid of them and cryptocurrency has provided a useful sandbox for people to try that, but a lot of the problems those rules were designed to create came back (e.g. AML law proved quite effective at stopping ransomware, hence why it all gravitated to cryptocurrencies). I worked on Bitcoin for a long time and the experience definitely made my view of financial law a lot more muted. The downsides of the regulations are only occasionally admitted to by the authorities and they aren't that good at building convincing arguments for it (because they don't have to be). But it's not like the laws exist purely thanks to Dastardly Dick.
Snapchat has been around since 2011, Slack has been around since 2013, and Musical.ly has been around since 2014. By 2018 they all had significant user bases; Musical.ly had been in acquisition talks with Facebook in 2016 [1], and was acquired for $1 billion by ByteDance in 2017 [5]. Snapchat had famously been offered $3 billion in 2013 by Facebook [2]. Slack was big enough to buy HipChat and Stride from Atlassian [3][4].
By 2018, I'd say these companies were already in a good position to compete with tech giants; but I wonder about the smaller startups. Say companies that have been founded in the past 5 years; have they had an unfairly hard time? Do they see any future where they can actually compete with a tech giant, and not just shoot for a buy-out? I don't have data on this, but I'd be curious to know how the trends have been shifting here.
[1]: https://www.digitalmusicnews.com/2019/11/13/facebook-musical...
[2]: https://www.cnbc.com/2017/07/12/how-mark-zuckerberg-has-used...
[3]: https://en.wikipedia.org/wiki/HipChat
I have no idea what the numbers look like, but I'm aware of people using Twitter Spaces (even though I no longer use Twitter!), while I'm not aware of anyone using Clubhouse.
If they could get the UI right on the threaded bits and add a standalone desktop app, they'd be very close to "good enough" for most places that need some central chat option.
I haven't tried out their web hooks yet, but it's on my experiment list. The rest of the Google Workspace offering just makes life so much easier though.
you need to do the math for both companies. If Snap took the offer and held the FB stock, it would be at the exact same valuation that SNAP is currently at
It also isn’t consistently profitable and just announced a profit warning. It’s also being hit by Apple’s Ad Tracking Transparency changes.
A simple look at the employee headcount at most unicorns is startling. A startup that's years away from IPO shouldn't have 5,000+ employees. At that point, you lose much of the agility startups are supposed to have in the first place.
The constant inflow of private funding have allowed startups to acquire way too many bad habits and bureaucratic layers.
More often the stock options are worthless, and that's how many companies value them when counter offering.
Not always. Get in at a 200+ engineer startup that is still growing, has a huge TAM, moat, lots of velocity, and a clear path to IPO, and you've got a pretty good shot at making great money. This is a good sweet spot for risk and reward.
Try to model the outcomes yourself.
AWS offers $100k for a year if you've raised some funds, and I saw that Azure is offering $150k pre-funding (I don't know if or what the time limit is on the Azure credits). I'm sure GCP offers something similar, though I don't know the details.
These are huge, and a smart startup could quite easily leverage these to skip an entire funding round (with some amount of luck). I'm not sure if you can daisy-chain these offers, but if you can, a quarter of a million dollars saved on engineering infrastructure cost is pretty much the polar opposite of "making life tough for startups".
You might note use the full amount of credits, but if you've found a product/market fit (and if you haven't after the first year, that may be it's own sign), and you've not been particularly cautious about your code's efficiency, $100k is a godsend, at least insofar as you not having to actually fork over cash for your missteps in the first year.
I don't know if those programs were offered when this article is written, but they're offered now so the title is no longer true.
We got a 100k and 150k AWS grant from AWS, and that was a big chunk of the computational budget. We were small, but the nature of HPC and our confidence in our algorithm meant we burnt the war chest on a YOLO and raised Series A.
1. Often the giants don’t pursue a space until a startup proves it’s viable - in that case you have to start something to make it happen. 2. Even internally there is a lot of competition at the giants for prime real estate and promo space on the apps to feature existing or new internal projects. The more types of projects the business launches, the more it has to kill because the mobile screen won’t grow any bigger. So there is a limit on how many acquired companies will actually keep living. If the team is any good, they are also pulled in other directions. For every github and instagram there are many more dead ends and even more so acquisitions of data.
It makes you wonder: what if in addition to privacy policy and terms documents, each online property has an acquisition terms statement. That would state for users and future acquirers see what is up for grabs if the startup is ever acquired (would product keep operating as part of the deal, would data be erased, would software be open sourced, would users/employees get some kind of a distribution, etc.)
> They ran an experiment. None of their lives have been ruined.” He knew they’d get good jobs, even if it meant the life of a project manager at Yahoo. “And none of their investors’ lives have been ruined either. When they close up shop, their investors will say, ‘That’s one more off the books. I don’t need to help them anymore. I get my time back.’”
No Exit: Struggling to Survive a Modern Gold Rush by Gideon Lewis-Kraus
That about crystalizes my sense of existential ennui at the moment.
On the one hand... It works. On the other hand, Christ, if that's all it boils down to... Dear God, what have we built?
An industry where people can get rich making something useful enough people want to buy it. It’s no less honorable or meaningful than any other way of doing that, like an insurance agent, wedding planner, toy manufacturer or sporting goods store and a lot better than being in a zero sum prestige racket.
https://slate.com/business/2014/05/no-exit-by-gideon-lewis-k...
Instagram acquisition for 1 billion as an example was a steal in hindsight, I bet facebook had more accurate forecasts for their growth than Instagram itself. I know Facebook did get some bad PR for collecting user data via a VPN app, but they didn't face any legal consequences- https://en.wikipedia.org/wiki/Onavo
This doesn't even address how at a societal level these companies can basically create self-fulfilling prophecies by manipulating what stories and information is shown to people
also makes me wonder about AWS/Amazon and what their policy is around copying some of their customers. They obviously fork or outright deploy managed open source projects to compete with them. I know Walmart doesn't let any of their suppliers use AWS either.
What impact do you mean and how do you know?
1) search engines are the dominant way to find information now.
2) conservatively, ≥80% of searches in US are through google.
3) google is not a passive observer of user search queries, but instead actively suggests queries to users.
It follows that there must be some impact. The "engagement" effect is this: I start a search for Depeche Mode, but get distracted by suggestions for J Depp. In contrast, DDG suggests Depakote, Depression, Dept of Revenue and a few other things. Other search engines seem to be less aggressive.
Yeah, that's why I'm asking...
The interesting artifact of this is that the dominant set of queries becomes a very small proper subset of natural/organic queries.
To what extent are they able to leverage that?
I had a similar experience with AWS when I worked at Netflix. We were trying to diagnose a really strange problem and I asked the engineer to look at our data from their tools to help me find it. They told me they couldn't access that data, that the tools blocked them. Then I tried to give them an SSH key for one of our instances and they told me they would get fired for doing that and could not under any circumstance log into our box.
I assume MS has similar controls.
Sheryl Sandberg was using her power to silence reporting on her partner’s sexual harrasment charges. Ebay execs were terrorizing a random couple. But no, they would never look into customer data! Pinky promise!
Such a naïve way of thinking…
Exactly. There will be strict controls for nearly all employees, but the rules don't really apply to top executives. Anyone in IT or Infosec who has to try to enforce policies on top execs has encountered this in their career.
If there is a substantial business advantage in seeing some data the company has, you can bet the execs are seeing that data.
A lot of AWS itself is just copied open source projects [2].
Google does the same thing with Yelp [3].
[1] https://www.reuters.com/investigates/special-report/amazon-i...
[2] https://www.nytimes.com/2019/12/15/technology/amazon-aws-clo...
[3] https://www.nytimes.com/2017/07/01/technology/yelp-google-eu...
AWS has very strict rules around accessing any kind of customer data. All of Amazon has some pretty significant red tape and hurdles to get security clearance to launch any piece of working software. No, that won’t stop a shitty product manager from looking over sales data to figure out if a certain business is worth exploiting, but accessing AWS customer data is an entirely different ball game. It’s like: jumping over a fence vs trying to break into Area 51.
I can almost guarantee that this egregious level of snooping on AWS customer data would never happen, and if somehow it did happen, it’s a nefarious individual with SIGNIFICANT authority to influence entire teams to extract, analyze, and get insights from this data. Again, I don’t think anyone at Amazons leadership is that insane to put their entire professional career in jeopardy, for something that someone would have a 100% guaranteed leak.
The people working there aren’t exactly idiots who’d easily fall in line and do something like this.
I’d like to be clear - I’m not defending Amazon. I no longer work there, and for what it’s worth, I think it’s a miserable place to work. A culture of back stabbing, inventing abstractions to drive promotions, people literally crying, disconnected leaders focused more on empire building to get promotions instead of doing what’s actually right for customers. Even then, the notion that AWS could line up teams, even on a secret project to do something so disdainful is an extreme stretch.
It's a pattern of behavior from Amazon, and given their backstabbing, cut throat culture (that you mentioned) isn't it fair to say that it's possible for Amazon employees looking to get ahead at all costs would violate those strict rules?
[1] https://www.reuters.com/investigates/special-report/amazon-i...
I’m sure there are some people that do. But AWS also knows what is it’s customers need and would be far more likely to go after those markets. Than go after a second level derivative like bandwidth.
I personally couldn’t imagine that it would go over to well if someone wrote a proposal in the form of a PRFAQ saying we should go after $x market because we noticed that a customer’s bandwidth was high.
But what about who is a customer? When I set up some stuff on AWS with a corporate email account, we got emails and phone calls right away from a very interested (and not very useful) sales person; I suspect because the corporate domain was high profile. Email domain is customer data, but it seems they looked at that. (OTOH, maybe all signups get a high touch sales process)
Or how about just a top N list of customers by spend (or bandwidth) or top N medium-big customers by growth? That's customer data, and would be super useful for (anti-)competitive reasons, but kind of hard to say no, you can't know who the big customers are.
What government regulations actually prevent this?
I know for instance they do something similar in terms of ripping off successful products on Amazon.com as Amazon Basics.
https://en.m.wikipedia.org/wiki/Onavo
Amazon bought Alexa (the site ranking site, not the voice assistant) for the same reason.
https://www.forbes.com/sites/alexkonrad/2018/10/08/the-new-a...
This is not the worst outcome for a startup
> It might be a nice payday for the founders but it's terrible for the business environment.
At the founding stage we tend to choose from highly quantised "types" of company, usually from a boilerplate legal template; limited liability, independent trading company, partnership, charity, non-profit and suchlike. I am no expert in company law, but as far as I know, at least in the UK, "Articles of Incorporation" (the charter of the company) can be almost anything that's legal.
Hence I've long been of the opinion that founders should build-in "non-acquisition" clauses, making it impossible for predators to simply scoop up a promising company, perhaps for some fixed period like 10 or 20 years. That would solve some of the issues under discussion here. It would also change the ecology and motivations within which companies are created, grown and invested in.
This sounds good and all, and I would be tempted to do it, but a non-acquisition clause does not prevent the big companies from cloning you either.
I still get upset about what Google did to Sparrow. I'm extremely gun shy when trying things these days. I don't want to like new products or get used to their features, because I don't trust they will be along for the long-haul.
This can be an issue even without acquisitions, as companies can simply go out of business. With the current business model of "take on debt until acquired or SPAC", it doesn't give me much confidence in the long-term prospects of many new tech companies. The first thing I always look for is how they are making money. If they don't have an answer to that question, I generally stay away.
That being said, we all go to work to exchange labor for money. It’s naive for employees to see working for any for profit company as anything more than just a financial transaction.
Investors know that the chances of a startup to go public and then be profitable enough to have long term stock gains is infinitesimally small.
Can you name one startup that has been really successful - ie throwing off crazy profits and margins since Facebook?
Investors aren’t interested in “lifestyle businesses”.
It really depends on the ownership structure, and that will depend on leverage at the time of fundraising. YC companies are unlikely to give up control until Series B (but like all things your mileage may vary).
It's not an offer if it can't be refused, it's just theft.
and extortion.